to give to circulation issued by unscrupulous men an opportunity to use an excellent system of banking for bad purposes. I think as long as we have enough United States bonds outstanding legislation should be shaped so as to continue them in use as a basis for national-bank circulation.

Henry W. Cannon, Comptroller in the years 1884 and 1885, said:

There is no doubt that the national banking system has been of great value to this country in many ways other than the supplying of a sound and almost perfect paper currency. This form of currency, which can be increased or diminished in accordance with the natural laws which control business, should be continued in preference to any other now permitted by law. It is extremely doubtful whether after the experience of the last twenty years the people would be satisfied with a currency based on any security other than United States bonds.

The reduction of circulation of national banks has been due, in addition to the call of bonds, to these causes: Small profit remaining to national banks on circulation; reduction in rates of interest throughout the country occasioned by the abundance of money in the financial centers; uneasiness among bankers as to the outcome of the increase of silver in the Treasury, indicating that possibly the interest on the public debt and some portion of the principal might be paid in standard silver dollars and Government bonds might thereby become depreciated in foreign markets, which would affect their price in this country.

William L. Trenholm, Comptroller from 1886 to 1888, inclusive, said : As long as the bonds remain the national-bank currency will continue to enjoy the confidence of the public. The national banking system will always stand splendid in history as an example of financial skill, successful under very difficult circumstances. The Treasury will be in a better position than now to maintain silver coinage at par with gold. The banks will hold specie more largely than now, and this will relieve the strain on the Treasury. Our national banks are the best that ever existed in this or any other country.

Edward S. Lacey, Comptroller of the Currency from 1889 to 1891, inclusive, said:

The history of national banks shows that the system is not only adapted to the changed conditions developed by the lapse of a quarter of a century, but is also suited to the wants of the inhabitants of widely separated States, living under varied social conditions and transacting business in accordance with customs as dissimilar as climate and race differences can produce on this continent. It is the most extensive, complete, and successful banking system that has ever existed in any country. Has any other ever furnished such complete security to depositors, such low rates of interest to borrowers, and such prompt, reliable, and cheap service in the way of collections and exchanges? Has any other ever furnished a superior circulation to the people, or done more to unify and harmonize the financial interests of all portions of the country?

The retirement of bank notes is rendering our circulation less elastic. Its volume should automatically expand and contract so as to adjust itself to the varying requirements of business. This can be best accomplished by the redemption of paper money during periods of diminished activity, and a corresponding reissue when the movement of crops and other causes make an expansion necessary. Such an adjustment was facilitated by the use of national-bank notes, for the reason that they did not possess the legal-tender quality, nor were they available for lawful money reserves by the banks. Hence, when a decreased volume of business caused currency to accumulate in the reserve cities, national-bank notes, being unavailable for reserve, were presented to the Treasury of the United States for redemption. Their temporary retirement was followed by reissue, and a healthy expansion resulted when an increased circulation was demanded. The coin and paper money of the Government is inelastic because it possesses the legal-tender quality and is available for lawful money reserves.

A. B. Hepburn, Comptroller of the Currency in 1892, said:

The Government, in the very nature of things, can not supply an elastic currency. The national banks can and have supplied this want fully and completely. Large appreciation of the price of United States bonds, long depreciation in rates of interest, and onerous taxation have made circulation unprofitable, and the volume has fallen from $362,889,134, on September 30, 1882, to less than $200,000,000 in 1895. All solicitude as to what shall serve as a basis for circulation when Government bonds cease to exist is premature. There is likely to be no reduction in the near future in the amount of bonds. There is money enough, and everybody can get it who has an equivalent value to give for it. Any bank in any part of the country can have money shipped to it at a cost of 15 cents per thousand dollars in paper; but such

bank must have the collaterals or of course it can not get the money. Right here is the trouble. The clamor for more money comes from the newer, less developed sections of the country, and from people who have nothing to sell that anyone wants to buy, or their securities are not satisfactory. People can always borrow on good security. People with any equivalent of money can get it. The law ought to be changed so as to allow the deposit of $1,000 in bonds as a minimum. Our national banks have given our country the best currency and the best commercial service it has ever had, and the good, solid business of the country can be relied upon to protect and preserve the system.

James H. Eckels, Comptroller of the Currency from 1893 to the present time, in his report for 1893 said:

Aside from the recommendations I have made to relieve the banks of their burdens, the public good will be best subserved at this time by making no radical change in the provisions of the law. The financial situation of the past months was not the result of either a lack in the volume of currency or a want of elasticity in the present system of issuing it, but came from loss of confidence on the part of the people in the solvency of the monetary institutions of the country. It is worthy of note and of serious consideration that at the very time the scarcity of the currency for business purposes was at its height the country's volume of currency was increasing the most rapidly and the amount per capita was the largest. Under the conditions which existed from May to September no system, no matter how elastic, or volume of currency, however large, could afford relief.

In his report for 1894 Comptroller Eckels said:

The complaint made against the present system is that, lacking in elasticity of issue, it fails to meet as fully as it ought the varying wants of the country's trade. This defect must attach to every scheme for currency issued by the banks against a deposit of bonds the market value of which fluctuates while the percentage of issue remains the same. It is safe to say that a note-issuing bank's best assets are its good business notes falling due and paid each day.

It is worthy of note that this is the first intimation from any Comptroller that currency based upon bonds deposited could not be elastic. In his report for 1895 Comptroller Eckels said:

It might be well for Congress to make it more profitable for banks to issue notes. National banks would largely increase their circulation if the embarrassments arising from the needless locking up of a large part of their capital and the lessened profit through taxation did not confront them. They certainly would do so if the legal-tender issues of the Government were paid and canceled and the channel now clogged by them freed for bank-note circulation. It has been demonstrated that issues made direct by Governments are expensive, and under every circumstance a source of danger and loss to the people's interests. No clearer proof of this could be had than that furnished by the difficulties which we have witnessed on the part of this Government in its efforts to maintain the full credit of its practically limitless amount of demand obligations.

There are two additional testimonials I would like to add to this imposing array of competent witnesses. Before reading them, however, I will ask your attention to a passage in the address of our honored chairman before the committee on February 17 last. He then said, on page 9 of his printed address, speaking of our national-bank currency:

This is not an elastic currency. It is a "freak currency;" a currency used against the people, and wholly in the interest of the banks; a currency issued when the people de not need the money and can not use it, to be withdrawn when the people do need the money and can use it.

This rivals the famous strictures of Tooke, one of the most noted economists of his time, on the Bank of England. In his great work on the history of prices, he said:

The Bank of England is one of the most wanton, ill-advised, pedantic, and rash pieces of legislation that has ever come within my observation.

Criticisms of this character remind one of Sydney Smith's complaint of the solar system. He said to his friend Jeffrey:

D-n the solar system; bad light, planets too distant, pestered with comets. Feeble contrivance. Could make a better with ease.

I desire now to read a paragraph from a small book published by a gentleman who is perhaps better informed upon the subject of finance than any other person connected with either branch of Congress. I refer to the distinguished chairman of our Committee on Banking and Currency, Hon. J. H. Walker. I find it in a small work which, in my judgment, contains the clearest and most satisfactory explanation of the rudimentary principles of banking and finance that I have any. where found. I read from the 1891 edition of the book entitled Money, Trade, and Banking:

No financial contrivance at the present time is any more thoroughly the natural product of past experience than the national-bank system of the United States. Every consideration urges its extension, with some slight modifications, to the extent of supplying all the circulating demand notes, as it does now all the banking facilities required by the business of the country. Its creation was but putting into the form of statute law the recognized conditions of safe banking, and prohibiting any other. The universal acquiescence and approval of the system recognizes the certainty of the continuance of what now is, because it is the result of inexorable business laws, of ages of business habits.

Worthy in every way to be associated with what I have just read from the pen of our chairman is the encomium pronounced upon our national banks by the late Hon. Samuel F. Miller, associate justice of the Supreme Court of the United States. In his work on the Constitution, Justice Miller says:

It is a matter of interest which I can not forbear to mention here, that the present national-bank system, in my judgment, and in that of many thinking men, statesmen, and financiers, is the best that the world has ever seen.

A banking system that deserves to be thus extolled can not be wholly bad at any point; and as a matter of fact our bank currency has been subjected to tests which demonstrated its possession of a high degree of elasticity. No system of banking could meet all exigencies. When nearly $400,000,000 of deposits are withdrawn from the banks and pocketed by the people in five months, as was done in 1893, no freedom of issue consistent with safety would supply the need. It requires more than a flood of currency to relieve a panic. In September and October, 1890, the circulation was increased nearly $63,000,000, yet the New York banks held less than in August. It was hoarded by the people. In ten months from. July 1, 1893, the circulation increased nearly $150,000,000, and then shrank in a few months $50,000,000 leaving the increase $100,000,000. So the national currency has shown a creditable capacity to meed the demands of trade. From July 12 to October 3, 1893, nearly $30,000,000 was added to the bank circulation. There was an increase of $5,250,000 of bank currency from November 1 last to March 16, and it is now up to $220,000,000.

I do not mean by emphasizing this aspect of the subject, as I have done, to overlook or obscure the idea, which all students of finance must understand, that the flexibility which results in increased issues is not a cure for all financial ills.

There are monetary disturbances which are not helped by increased issues. The expansive method of treating panics is the true one in some cases; in others the restrictive treatment is more suitable. There is no principle of monetary science or law of political economy which gives the slightest countenance to the idea that increased bank issues at this time would help the Treasury difficulty. A situation produced by a drain of gold to settle foreign balances is not improved, but intensified, by increasing the currency. When exchange is against us, for whatever cause, the export of gold can be arrested by a fall in prices or a rise in the rate of interest. Reverse the exchanges, by rendering

commodities more advantageous for remittances than gold, and the difficulty ceases. Raise the rate of interest sufficiently to induce foreigners to leave their gold here for investment, and the same result is reached. On this view all economists and financiers are agreed. If H. R. 171 or H. R. 6442 were to become a law, and all the currency which they are supposed to be capable of supplying were in actual circulation, it would, in my judgment, greatly retard recovery from the present monetary disorder.

NATIONAL BANKS AND PROSPERITY.

I can not be persuaded that a banking system that worked so well for so many years while we were in a normal condition down to 1892 or 1893 needs to be turned down at this time. I doubt if any kind of a system would work with ideal perfection under the present circumstances. The English system has broken down four times since 1844, and the French system missed fire in 1848, and again in 1870, when specie payments were suspended until 1877.

Under our system as it is now the country enjoyed for many years a high-I may say an unexampled-degree of prosperity. Wealth increased at an enormous ratio, our debt was rapidly paid, and the United States became the greatest debt-paying nation in the world. No other country ever contracted debt so rapidly or discharged it with such alacrity as our own.

Under the compulsion of a patriotic necessity, in the small space of five years we contracted a debt of almost $3,000,000,000. Our annual interest charge was $150,000,000. In thirty years we extinguished more than $2,000,000,000,000 of that colossal pile, in addition to nearly $2,500,000,000 of interest and $118,000,000 premiums on bonds, making a total of over $4,500,000,000, or an average annual payment of over $150,000,000 for the entire period. This, you will agree, is debt paying on the most stupendous scale recorded in human history, and it has excited the wonder and admiration of the civilized world.

Gladstone, when we had gone but a little way-only twelve years after the war-in this phenomenal experience of debt paying, speaking of the financial sequel to the great conflict, said:

England in sixty-three years after the Napoleonic wars reduced the huge total of her fabulous debt by only $500,000,000, while the United States in twelve years had reduced her debt $790,000,000, doing in each twelvemonth what England required eight years to do. American self-denial and wise forethought have been, to say the least, eightfold ours.

This was the homage Gladstone paid to what he called the "most unmitigated democracy known to the annals of the world."

As Americans our breasts swell with pride at the splendid preeminence we have achieved in this among the other manifold triumphs which have shed upon our history a glory whose luster can only be dimmed by the misfortune, which God forbid, of the necessity or the habit of increasing instead of diminishing our national debt becoming inveterate, or of settling down into English indifference to the payment of our national obligations and shifting the burden upon posterity, with the idea which prevails in England that a great debt is an eminently respectable institution and one of the blessings of a perfect constitution. This would indeed dim the luster of our financial history, for it would be the dawn of the day of disaster to the pride, prosperity, grandeur, and glory of the United States.

For many years our gold reserve was strong, even though the volume

of currency rapidly increased. For many years our Treasury was richer in gold than any other in the world. On May 1, 1887, there was gold in the

By reason of causes not involving our banking system recent years have witnessed the depletion of our gold reserve and its accumulation in the European banks, as the following statement shows: Gold holdings of the European banks at the dates stated:

These are all note-issuing banks, and the hoarding is about at an end. This increase of gold is not accompanied by a proportionate increase of note issues. This means that the gold is idle. The Bank of France increased its stock of gold $75,000,000 in 1892, and in January, 1893, its note issues were so nearly covered by gold and silver that to avoid paying out specie it applied to the Government for authority to issue 500,000,000 francs more of its notes. On January 23, 1896, it had 87 francs in gold and silver for every 100 of notes outstanding, and the circulation was 3,627,000,000 francs. The Bank of Germany had on January 15, 1896, 79 marks of gold and silver for every 100 marks of notes outstanding, with a circulation of 1,136,800,000 marks. The Bank of England on January 23, 1896, had in banking and issue department 188 pounds in gold for every 100 pounds outstanding notes. There is thus a glut of gold in the European banks. This mass of metal has grown beyond profitable banking limits, and beyond any necessary limit of security to note holders. In my opinion these banks have arrived at a turn in the way, and soon this gold will begin to diffuse itself and we will get our share of it.

CAUSES OF OUR FINANCIAL DIFFICULTIES.

The chief evil in our monetary system which afflicts us at this time, and with which we have to grapple, is not, as we have seen, one that had its origin in any defect in our banking system, but in a totally different quarter. It is a difficulty which involves Government finance rather than banks. Its real origin is found beyond any question in a lack of confidence and cash. A prevailing distrust of the power of the Government to redeem its paper in gold and a progressively diminishing revenue have resulted in an adverse balance of trade, which is drawing our reserves.

These causes are fully adequate to produce the consequences which have ensued, and whether there be others it is unnecessary to inquire, unless we undertake as vain a task as the surgeon who, having found in the case of his patient two injuries which were fatal, pursued the investigation of a third, and replied to an inquiry as to whether the injuries were fatal, "Two of them are certainly fatal, and as to the third, time alone will tell."

1 So stated by George Rutledge Gibson in The Bond Record for March, 1896.